Genel Issues Interim Management Statement for Iraq fields

Source: 11/1/2012, Location: Middle East

Genel Energy plc issues its Interim Management Statement for the period from 1 July 2012 to 31 October 2012. Genel Energy's net working interest production for the year to date averaged 42,000 bopd.

Following the resumption of export sales from the Kurdistan Region in the first week of August, total exports commenced at 100,000 bopd. As part of a subsequent agreement reached between the Kurdistan Regional Government (KRG) and the Federal Government of Iraq (FGI) on the 13 September, this number is expected to rise to 200,000 bopd by the end of the year.

Genel Energy is now selling 100% of the Company's production at international prices and our production guidance for 2012 has increased to 45,000 bopd. In 2013, assuming the Company continues to export our production from both Taq Taq and Tawke, average daily production is expected to be in excess of 70,000 bopd.

As part of the agreement between the KRG and the FGI, the FGI agreed to pay the KRG for historic exports owed to contractors in the Kurdistan Region. The KRG received an initial payment of $530 million on 8 October 2012, and the Company expects to receive its first payment shortly. This payment is expected to reflect part of the total amount owed to Genel Energy for unpaid historic export revenues, and will be in accordance with the contractor's entitlement under its PSCs. The outstanding balance is expected to be received in early 2013.

For current exports, we expect all revenue payments will be received in accordance with the PSC entitlement. Under the terms of the 13 September agreement export payments are to be received quarterly in arrears, with the first payment due in the first quarter of 2013. Sales revenue guidance for 2012 remains unchanged at c$250-300 million as the Company's accounting policy is to account for export revenues only on receipt of cash.

Taq Taq
The Company has continued to progress the appraisal and development programme at Taq Taq. Gross production capacity is currently 120,000 bopd and remains on track to deliver production capacity of 200,000 bopd by 2014. As part of the ongoing development, the EPC contract for the second phase of construction of the central processing facility has been awarded to Ventech USA. The facility will add an additional 90,000 bopd and is expected to be operational in the first quarter of 2014.

Field development drilling has continued with 3 of the 5 wells planned for 2012 completed and 2 more planned before the year-end. Taq Taq 17 initially flowed at 26,000 bopd from multiple, independently tested zones and is now a producing well. Taq Taq 19 completed, appraising a previously unpenetrated area of the field further north. It flowed at 15,000 bopd from the Upper Cretaceous Shiranish formation.

Pipeline Update
The first phase of the KRG's export pipeline infrastructure is nearing completion. The construction of a 20" pipeline from the Taq Taq oilfield to Khurmala is expected to be operational by the end of 2012, giving Taq Taq access to the Erbil refinery and the existing Kirkuk to Ceyhan export infrastructure. KAR Group, the private Kurdish construction company, is building the pipeline, which has an initial capacity of 150,000 bopd that it is planned to increase to some 200,000 bopd with the addition of pumps. Assuming exports continue, we expect production from Taq Taq at the beginning of 2013 to reach levels closer to the current field capacity of 120,000 bopd.

The second phase, where construction is expected to start in 2013, is a one million bopd capacity pipeline from Khurmala to the Fishkabur pump station on the border with Turkey. This pipeline will be controlled by the KRG and it will allow Taq Taq crude to be exported directly to Turkey.

Genel Energy and DNO International are on track to deliver production capacity of 100,000 bopd at Tawke by the end of 2012 with the completion of facility and pipeline capacity upgrades and further development drilling. Studies are underway to support production capacity of 200,000 bopd by the end of 2014.

The planned 2012 development-drilling programme of 3 wells, in addition to Tawke 16, is on track. Tawke 14 drilled through the main field-bounding fault and entered the Tertiary Gercus formation. The well is currently being sidetracked. Tawke 18 was completed at the Cretaceous reservoir as part of the target to achieve production capacity of 100,000 bopd by the end of the year, and will shortly be put on production. Tawke 19, the last Tawke development well under the 100,000-bopd-production enhancement programme, spudded on 6 October. It is currently drilling at c1, 000 metres with a target depth of c2, 500 metres.

Exploration and Appraisal - Kurdistan
Genel Energy's current exploration programme in the Kurdistan Region comprises three further high impact wells to be completed during the second half of 2012 and the early part of 2013, targeting over 750 mmboe of unrisked resource potential. Tawke Deep and Chia Surkh 10 have spudded since the half-year and a further well (Taq Taq Deep) is expected to spud in the first quarter of 2013. Drilling at Miran East-1 continues.

As previously announced, Genel Energy completed its acquisition of an additional 26 per cent interest in the Miran exploration block for $156m on 22 August 2012 and became joint operator. At the same time the Company provided a bilateral loan to Heritage Oil Plc ("Heritage") of $294 million, which subject to Heritage shareholder approval, can be repaid by the transfer of Heritage's remaining stake in the Miran exploration block to Genel Energy rather than in cash. Assuming this transfer takes place, Genel Energy's interest in the Miran block will increase to 100 per cent from the 51 per cent the Company owns today, prior to the KRG's 25 per cent back-in right.

In the second half of 2012, the appraisal programme for the Miran West discovery has continued. The Miran West-4 deviated appraisal well reached target depth on 16 July. The well was drilled to a target depth of 1,905 metres and tested 1,350 bopd of 16-18 degree API oil in the Upper Cretaceous oil reservoir similar to Miran West 1 and Miran West 3. During the first half of 2013, an additional 2 appraisal wells are planned along with an Extended Well Test on the oil bearing lower Cretaceous reservoirs. It is expected that this will produce up to 5,000 bopd starting at the end of 2012.

The Miran Block (51 per cent working interest) is a commercial gas discovery and the intention is undertake a phased approach to field development. Over the course of the next 12 to 15 months multiple elements of the full field development project will be progressed including completing FEED work, continuing discussions with customers to secure long term gas sales agreements and working with the KRG to ensure appropriate export infrastructure is in place.

Bina Bawi
Further appraisal of the Bina Bawi field (44 per cent working interest) will continue for the rest of 2012 and into the first half of 2013. Bina Bawi-4 in the north of the field spudded on 17 June 2012 and is currently drilling at circa 2,300 metres with a target depth of circa 4,200 metres. The well is designed to test the Jurassic, Triassic and Permian reservoirs with results expected in the first quarter of 2013. Bina Bawi-5 spudded on 14 October 2012, with a target depth of c 2,400 metres. It is targeting the Jurassic and Triassic reservoirs, as well as testing closure of the structure to the North West. 3D seismic will be shot over the field during 2013 to build further understanding of the reservoir, ahead of full field development.

In common with other fields successfully developed in the Kurdistan Region, a phased approach is being taken to field development. An extended well test is expected to come on stream in early 2013 with an initial capacity of 5,000 bopd from the Bina Bawi 3 well. Ahead of full field development, Declaration of Commerciality is planned for 1Q of 2013, with the Field Development plan expected to be submitted in the second half of 2013.

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